1. Field of the Invention
The present invention relates, generally, to calculating fees for services, and, more particularly, to a system and method for determining fees for services based on a desired profit percentage associated with a service industry.
2. Description of the Related Art
The ability to determine rates for professional services has been a significant impediment to those desiring to maintain a profitable business while simultaneously providing quality services that are affordable. Multitudes of professional services are provided each year to consumers, and many competing businesses in a respective service industry charge rates that are markedly different. Moreover, consumers who require professional services cannot accurately assess whether the fees they are charged are fair and/or accurately reflect the quality of services rendered. One unfortunate result is that consumers do not call into question the fees they are charged for a professional service or do not question the quality of the service that is rendered without a clear indication of a problem with the quality of service, the fees associated therewith or both. Another unfortunate result is that consumers unfairly call into question the fees they are charged or the quality of a service they receive.
Many businesses that provide professional services require employment staff, equipment and inventory supplies in the course of their business. The costs to a business that are associated with, for example, staff, equipment and supplies directly affect the profitability of a business providing professional services. Costs associated with employment staff can vary significantly depending upon the type and level of skill of the employee. For example, an office assistant is paid a lower salary (or hourly rate) than, for example, a skilled technician. Thus, costs associated with a providing a service depend, at least in part, upon the level of skill of the person either providing the service or contributing to the performance of the service.
Often in the prior art, a service provider may know that many costs are incurred during the course of providing services, however costs are not adequately factored into calculations to determine fees for respective services. The unfortunate result is that fees charged for providing services do not account accurately for all of the costs associated therewith and, accordingly, the fees are set too high or too low, artificially. In case the fees are set too low, consumers will likely be satisfied, but the business cannot realize its financial potential or may lose money. In case the fees are set too high, consumers may be dissatisfied.
Often, fees for services may not be calculated accurately because costs considered by the service provider for equipment represent only the purchase price of the equipment. Equipment, typically, has an estimated life span (e.g., a period of time in which equipment functions properly) and most equipment eventually requires replacement. Accordingly, equipment inherently has a replacement cost per use factor that represents a relationship between the cost associated with using equipment and the cost associated with replacing the equipment. For example, a centrifuge that costs $500 to replace, has an expected life span of five years, and is used two thousand times a year costs has a lower per use cost than one that is used only fifty times a year. One service provider using a centrifuge two thousand times per year should charge, for example, 5¢ per use in order to factor the cost associated with replacement, while a second service provider using a centrifuge only fifty times a year should charge, for example, $2.00 per use in order to factor the replacement cost.
Therefore and in view of the foregoing, fees for services that require use of equipment should be calculated to make an accurate return on the equipment, and to represent the costs associated with operating and replacing the equipment. Today, in most service oriented businesses, these calculations are not being made.
In addition to equipment, costs associated with employees and staff are also, typically, not factored adequately into a calculation of fees for services in the prior art. For example, variables such as wages paid, benefits (e.g., health insurance costs, license costs, dues, profit sharing, or the like), taxes paid by an employer and paid time off (e.g., holidays, vacation and sick leave) are not adequately assessed to calculate fees associated with providing professional services. A calculation should be made for each paid person that represents the sum of the person's gross wages, benefits and employer taxes paid. That sum should be divided by the number of billable work weeks in order to calculate a value referred to herein, generally, as a cost per billable minute value.
Further, labor associated with activities that are collateral to providing a service should be factored into the calculation of fees associated with professional services. For example, labor associated with setting up equipment, clean-up, etc are not assigned.
In certain instances, employees may spend time in non-productive areas or being non-productive. For example, a manager divides his time between management duties and actual production. In this case, the present invention supports identifying the percentage of time that managerial duties are performed, and that percentage is preferably applied to the manager's salary, and that portion of the manager's salary is input into the present invention and defined as non-billable time. The remaining percentage of salary is input into the billable employee portion of the income statement.
The same percentage may be applied to hours. For example, a manager is paid $40,000, half of the time is spent in management, half of the time is spent as production time, with actual productive time of 18 hours. In this context, $20,000 should be applied to non-billable time and $20,000 to billable time. The week work hours would be defined as ½ of 40 or 20 hours and billable hours would be the productive time spent within those work hours 18 out of 20 hours, and the production percent is 18/20 or 90%. Although costs associated with equipment and labor represent a significant portion of a service provider's expenses, it is recognized by the inventor that additional overhead expenses are incurred, such as costs related to leases, mortgages, utilities, advertisements and other operational expenses. It is estimated that labor/benefits/taxes represent approximately 55% of a service provider's accounting expenses. Operating overhead costs account for 22% of a service provider's accounting expenses. Inventory costs represent approximately 20% of a service provider's accounting expenses. Typically, businesses are guessing at the fees and do not know how to cover above costs and only realize a small profit, for example 3%. They do not know how to cost out for their leases, their mortgages, their utilities and/or their advertisement expenses. For example, 3% is an unfortunate result of low profit, which equates to 100% (i.e., 55%+22%+20%+3%) of a fee for service charged by a service provider. In the prior art, service providers were unable to account accurately for labor, equipment, inventory and supplies, and were therefore unable to expense such costs to calculate fees.